How the US-China tech row affects LatAm's telecom infra projects

The tech geopolitical row between the United States and China has become an obstacle for telecom infrastructure network multinationals planning projects across Latin America.

US restrictions can delay licensing, make projects more expensive by vetoing cheaper Chinese suppliers and force different routes on connectivity systems.

This is the case with submarine cables that land in the US and cannot have any Chinese component or technology. The same applies to fibers, optical repeaters, splitters, and software.

“That’s true for any system. A couple of new subsea cables that are being built that are having to deal with that in order to be granted permissions from the US, and even to other countries,” says Erick Contag, COO of Globenet and CEO of the SubOptic Foundation, a global, non-profit association dedicated to promoting the development and sustainability of global subsea fiber cable and connectivity infrastructure.

Most of SubOptic's board members come from Western companies such as ASN, Ciena, Meta and Google. The executive committee includes Ma Yanfeng, who is the executive VP of HMN Technologies (formerly Huawei Marine Networks) and Magda Abdelkader from Telecom Egypt.

For the US to clear the 2014 sale of Globenet to BTG Pactual, the company had to remove Chinese systems from the submarine cables, Contag told BNamericas, including a software layer used on top of the physical infrastructure. Globenet operates a 26,000km submarine system through different routes in the region.

The US has a State Department program called 'Rip-and-Replace' that provides funding for US communication providers to remove Chinese equipment from its infrastructure. 

“The US-China rivalry will increasingly play a role in the digital infra landscape. Chinese companies are upping their investments in the region, while the US is looking for friendly vendors,” Contag added.

NEW SYSTEMS

Several new submarine cables are expected to see daylight in Latin America in the coming months and years. Gold Data-Liberty Latin America (GD-1/LD-1 cable), Trans Americas Fiber System (TAM-1), Telconet (Carnival Submarine Network), Google (Firmina), Telefónica's Telxius and América Móvil (Tikal/AMX- 3), and Ocean Networks (Caribbean Express) are in different stages of construction of systems that will connect Latin America to the US. In most of these cases, the landing point is in Florida.

No Chinese vendor appears as a supplier for the most recent projects, either in operation or planned.

Instead, two companies dominate the list of cable manufacturers connecting Latin America and the US: Alcatel Submarine Networks (ASN), belonging to Finland's Nokia, and SubCom from the US. They are followed by Xtera, also from the US.

Suppliers vetoed by the US can still be providers for Latin American cable projects that do not touch the United States. 

One example is the underwater fiber network program in the Amazon spearheaded by the Brazilian government, which has ZTT and HMN among its suppliers.

“We believe our projects, including submarine cable projects, should be open. The market should be open. There are gains in economies of scale, gains for companies. Globalization is there and should continue. That’s what we think, and not only for HMN Tech, but for any other suppliers coming from China,” Leslie Cao, the general manager of the system solutions department in HMN Technologies, told BNamericas.

HMN was the provider for Infovia 01, one of the stretches of Brazil’s Norte Conectado Amazon fiber project. Cao said the company plans to bid for the remaining stretches of the program that are yet to be announced.

HMN also supplied the submarine part of Chile’s FOA fiber backbone project and is producing fiber for Petrobras’ optical mesh program.

“Energy companies need digital transformation and automation for their remote control and platforms, hence why connectivity is very important. And if you transit your signals to satellite, the bandwidth is very limited,” said Cao.

“Latin America is a very important market for us. We started our business in Latin America, having delivered our first repeater in the region. We keep a strong team locally to find any potential opportunities to develop our business.” 

TOTAL COST OF OWNERSHIP

SubOptic’s Contag praises the quality of technologies from players such as ZTT and admits that cost is key in price-sensitive Latin America. 

In his view, though, some Chinese technologies often seen as cheaper might lead to unforeseen expenditures in the long run.

“One needs to look at the total cost of ownership. You have two factors. In one case, you have the Chinese development bank helping to subsidize companies, providing very good prices. The entry prices are very low, but the ongoing maintenance support, everything else, might add to it,” Contag said.

Technological-geopolitical issues are not limited to submarine cables. Last week, the US Securities and Exchange Commission imposed sanctions on Telefónica for commercial relations with Chinese suppliers in Venezuela. 

The Spanish multinational, which has collaborated with the US authorities, has agreed to negotiate a fine to close the case due to the geopolitical implications involved and the potential impact on its US shareholders, such as BlackRock.

On the chipset battleground, the US government is stepping up pressure on friendly governments and allies to stop companies from servicing chipmaking tools for Chinese customers.

The request comes amid an ongoing investigation into an alleged chip sanctions breach by Semiconductor Manufacturing International Corp (SMIC), China's biggest semiconductor company, which would have used components from a Dutch firm. 

“It’s a war, truly a war," said Contag.